CLA-02 RR:CR:SM 563060 DCC
Mr. Erik D. Smithweiss
Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP
399 Park Avenue, 25th Floor
New York, NY 10022-4877
RE: Applicability of HTSUS subheading 9802.00.50, HTSUS to U.S.-origin Lutein
Dear Mr. Smithweiss:
This is in response to your letter dated June 1, 2004, on behalf of DSM Nutritional Products, Inc. (“DSM”), in which you request a ruling regarding the treatment under 9802.00.50, Harmonized Tariff Schedule of the United States (“HTSUS”), of four lutein products. You originally submitted your request to the National Commodity Specialist Division (“NCSD”) of Customs and Border Protection (“CBP”). On June 21, 2004, you asked that your ruling request be transferred to this office. In addition to your submission, we received a memorandum, dated June 25, 2004, from the NCSD.
FACTS:
DSM intends to import four products into the United States from abroad with the following trade names: Lutein 5% TG, Lutein 5% TG/P, Lutein 5% CWS, and Lutein 20% FS. The 5% lutein products are in beadlet particle form, and 20% lutein product is in oil suspension form. All four products will be used in the United States to produce human food supplements products.
The imported 5% and 20% lutein products are created from U.S.-origin crystalline lutein powder. A typical batch of the U.S.-origin lutein powder contains 78% lutein, 14% waxes, 7% zeaxanthin, and 1% moisture.
To create the 5% lutein products, the crystalline lutein powder is processed abroad as follows:
The crystalline lutein powder is combined with DL-alpha-Tocopherol, sodium ascorbate, and ascorbyl palmitate;
The resulting mixture is placed in a solvent to reduce the size of the crystalline particles;
The lutein mixture is combined with gelatin and sucrose, which act as a carrier matrix;
The solvent is removed;
The mixture is dispersed through a sprayer to create beadlet particles, which are coated with cornstarch to maintain separation; and
The beadlets are dried and placed into containers.
For the 20% lutein product, the crystalline lutein powder is processed abroad as follows:
The lutein powder is combined with DL-alpha-Tocopherol and corn oil;
The resulting oil-based mixture is mixed and then milled to reduce the size of the crystalline particles; and
The mixture is placed into containers.
For both the 5% and 20% lutein products, the molecular structure and formula (C40 H56 O2) of the lutein will not change as a result of the Swiss processing. In addition, the Chemical Abstracts Service ("CAS") number for both the U.S.-origin lutein powder and the further processed lutein products is 127-40-2. In addition, you state that both the lutein powder material and the 5% and 20% lutein products are sold to retail customers in the United States for use as a food colorant and dietary supplement ingredient. You claim that the change of the lutein crystalline powder into 5% lutein in beadlet form or 20% lutein in oil suspension form represents an alteration for purposes of subheading 9802.00.50, HTSUS, as the processing abroad makes the lutein easier to use and gives it a longer shelf life.
ISSUE:
Whether the 5% and 20% lutein products are eligible for subheading 9802.00.50, HTSUS, treatment.
LAW & ANALYSIS:
Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles returned to the United States after having been exported to be advanced in value or improved in condition by means of a repair or alteration. Duty is assessed only on the cost or value of the repair or alteration abroad, provided that the documentary requirements of 19 C.F.R. 10.8 are met. However, the application of this tariff provision is precluded in circumstances where the operations performed abroad destroy the identity of the articles or create new or commercially different articles. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff’d C.D. 1752, 36 Cust.Ct. 46 (1956), and Guardian Industries Corp. v. United States, 3 CIT 9 (1982). The partial duty exemption provided by subheading 9802.00.50, HTSUS, is also precluded where the exported articles are incomplete for their intended use and the foreign operation constitutes an intermediate processing operation, which is performed as a matter of course in the preparation or the manufacture of finished articles. See Dolliff & Co. v. United States, 81 Cust. Ct. 1, C.D. 4755, 455 F.Supp. 618 (1978), aff’d, 66 CCPA 77, C.A.D. 1225, 599 F.2d 1015, 1019 (1979).
In Dolliff, the court found that the processing steps performed on exported greige goods were undertaken to produce the finished fabric and could not be considered as alterations. At issue in Dolliff was the question of whether certain Dacron polyester fabrics, which were manufactured in the United States, and exported to Canada for heat-setting, chemical-scouring, dyeing, and treating with chemicals were eligible for the partial duty exemption available under item 806.20, Tariff Schedules of the United States (“TSUS”) (the precursor to HTSUS subheading 9802.00.50), when returned to the United States. Specifically, the U.S. Court of Customs and Patent Appeals stated:
repairs and alterations are made to completed articles and do not include intermediate processing operations which are performed as a matter of course in the preparation or manufacture of finished articles. In the instant situation, the operations performed in Canada comprise further processing steps which are performed on unfinished goods and which lead to completed articles, i.e., the finished fabrics, and, therefore, the processing cannot be considered alterations.
Congress did not intend to permit incomplete articles to be exported and made into finished products in the foreign country and when returned to be subject to duties only on the cost of the so-called alterations. United States v. J.D. Richardson Company, 36 CCPA 15, C.A.D. 390 (1948), cert. denied, 336 U.S. 936 (1949). Therefore, the focus is upon whether the exported article is “incomplete” or “unsuitable for its intended use” prior to the foreign processing. See Guardian Indus. v. United States, 3 CIT 9 (1982).
In Headquarters Ruling Letter (“HRL”) 560274, dated May 16, 1997, CBP considered the question of whether granular and pellet herbicides manufactured in the United States and then exported to Switzerland to be ground into powder, heated and bagged, were eligible for a partial duty exemption under subheading 9802.00.50, HTSUS, when returned to the United States. CBP determined that the granules were complete for their intended use prior to exportation to Switzerland and found that the foreign processing operations did not have the effect of destroying the identity of the products or changing their chemical compositions but only altered their form and did not result in any significant change in the character or use of the products. Accordingly CBP held that the process of grinding the granules and pellets in Switzerland constituted an acceptable alteration within the meaning of subheading 9802.00.50, HTSUS.
Similarly, in HRL 557836, dated April 11, 1994, CBP considered whether nylon resin manufactured in the United States in granular form and exported to Switzerland where it was cooled with liquid nitrogen and then ground into powder, heated, blended and bagged, was an alteration within the meaning of subheading 9802.00.50, HTSUS. The finished powders were used in the formulation of adhesive pastes. The exported nylon resin was complete for its intended adhesive application and a purchaser could either buy the powder or resin form. The adhesive action was essentially the same and the granules and powders were sold in the same end use markets. CBP held that the processing of the nylon resins in Switzerland was an alteration within the meaning of subheading 9802.00.50, HTSUS. See also HRL 555740, dated May 28, 1991; HRL 556616, dated June 16, 1992; and HRL 557534, dated December 17, 1993.
Likewise, in HQ 561918, dated July 30, 2001, CBP determined that the processing by which exported acrylic coatings were changed from liquid into aerosol form by the addition of solvents and propellants was an acceptable alteration for purposes of subheading 9802.00.50, HTSUS, and held that the returned product was eligible for the partial duty exemption provided by that subheading. It was found that the coatings, both before and after the foreign processing, were suitable for their intended use.
Based on the information provided, and consistent with our previous rulings, we find that the further processing of crystalline lutein powder into beadlet particles or oil suspension is an acceptable alteration for purposes of subheading 9802.00.50, HTSUS. The processing abroad does not alter the molecular structure of the U.S.-origin lutein powder, nor does it result in a change of the CAS number of the active ingredient. The lutein powder is complete for its intended use as a food colorant or dietary supplement ingredient and, therefore, the foreign operation is not a necessary step in the manufacture of finished lutein products. Finally, the exported crystalline lutein powder and the imported lutein products, in beadlet form and oil suspension form, are marketed and sold to customers as separate products for the same use.
HOLDING:
On the basis of the information provided, the processing of crystalline lutein powder into beadlet form with 5% lutein, or oil suspension mixture with 20% lutein, as described above, constitutes an acceptable alteration for purposes of subheading 9802.00.50, HTSUS. Therefore, the returned lutein is entitled to classification under this tariff provision with duty to be assessed only upon the cost or value of the operations performed abroad, provided the documentary requirements of 19 C.F.R. 10.8 are satisfied.
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer.
Sincerely,
Myles B. Harmon, Director
Commercial Rulings Division